M/s International Stone India Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 539/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8681 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: C RAMESH
• Keywords: Business income; Depreciation; Deemed export; Unabsorbed depreciation
• Section: 143(3); 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NOS.539, 1474 & 1475/BANG/2014 ASSESSMENT YEARS : 2009-10, 2010-11 & 2011-12 M/S. INTERNATIONAL STONES INDIA PVT. LTD., NO.55/12, ALANKAR APARTMENTS, FLAT NO.1, 39 TH CROSS, 14 TH MAIN, JAYANAGAR 4 TH T BLOCK BANGALORE 560 041. PAN: AABCI 1821R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(4), BANGALORE. APPELLANT RESPONDENT ITA NOS. 608 & 1332/BANG/2014 ASSESSMENT YEARS : 2009-10 & 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(4), BANGALORE. VS. M/S. INTERNATIONAL STONES INDIA PVT. LTD., BANGALORE 560 041. PAN: AABCI 1821R APPELLANT RESPONDENT APPELLANT BY : SHRI C. RAMESH, CA RESPONDENT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) DATE OF HEARING : 24.11.2015 DATE OF PRONOUNCEMENT : 20.01.2016 ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 2 OF 28 O R D E R PER BENCH : THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE DE PARTMENT AGAINST THE ORDERS DATED 31.1.2014 FOR THE AY 2009- 10 AND DATED 31.7.2014 FOR THE AYS 2010-11 & 2011-12 OF THE CIT (APPEALS)-I, BANGALORE. ITA NO.539/BANG/2014 BY ASSESSEE (A.Y. 2009-10) 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE MANUFACTURE AND EXPORT OF POLISHED SLABS AND TILES. IT FILED ITS RETURN OF INCOME FOR THE AY 2009-10 ON 30/9/2009, DECLARING T HE TOTAL INCOME AT RS.1,12,59,435/-. INITIALLY THE RETURN WAS PROCESSE D U/S 143(1) OF THE ACT AND THEN SELECTED FOR SCRUTINY UNDER CASS. STATUTO RY NOTICES AS REQUIRED UNDER THE PROVISIONS OF THE ACT WERE ISSUED. IN THE ASSESSMENT CONCLUDED U/S 143(3) OF THE ACT VIDE ORDER DATED 12/12/2011, THE ASSESSEES TOTAL INCOME HAS BEEN DETERMINED AT RS.2,78,50,117/- DUE TO THE DISALLOWANCES/ADDITIONS OF THE FOLLOWING AMOUNTS FO R PURPOSES OF CALCULATING THE DEDUCTION U/S 10B OF THE ACT:- ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 3 OF 28 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED APPEAL BEFORE THE CIT(APPEALS). 4. WITH RESPECT TO SETTING OFF OF CARRIED FORWARD A ND UNABSORBED DEPRECIATION AGAINST PROFITS OF THE UNDERTAKING U/S . 10B AMOUNTING TO RS.26,09,261, THE FACTS ARE THAT THE ASSESSEE DECLA RED INCOME OF RS.1,38,68,696 FOR THE YEAR BEFORE SETTING OFF OF U NABSORBED DEPRECIATION AND DECLARING INCOME OF RS.1,00,16,037 AFTER ADJUST ING UNABSORBED DEPRECIATION OF RS.26,09,261 AND DEDUCTION UNDER CH APTER VIA OF RS.12,43,398. THE CONTENTION OF THE ASSESSEE BEFOR E THE CIT(A) WAS THAT BROUGHT FORWARD UNABSORBED DEPRECIATION OF RS.26,09 ,261 FOR THE AY 2006- 07 HAS TO BE ALLOWED WITHOUT FACTORING THE SAME FOR CALCULATION OF DEDUCTIBLE EXPORT PROFIT U/S. 10B OF THE ACT, FOLLO WING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD., 341 ITR 385 (KARN) . 5. THE AO HAS GIVEN HIS FINDING IN PARA 3 OF THE AS SESSMENT ORDER AS UNDER:- ON PERUSAL OF COMPUTATION OF INCOME FILED BY THE A SSESSEE COMPANY IT WAS OBSERVED THAT ASSESSEE HAS SETOFF B/ F UNABSORBED ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 4 OF 28 DEPRECIATION OF RS.26,09,261/- AGAINST THE CURRENT YEAR PROFITS. ON VERIFICATION OF PREVIOUS YEAR RECORDS IT WAS FOU ND THAT NO C/F UNABSORBED DEPRECIATION IS AVAILABLE AS PER THE ORD ER PASSED U/S 143(3) FOR AV 2808-09 IN VIEW OF THE SAME, NO SET O FF OF B/F DEPRECIATION IS ALLOWED FOR THE CURRENT YEAR. 6. THE CIT(APPEALS) OBSERVED THAT SIMILAR ISSUE WAS RAISED IN A.Y,. 2007-08 AND 2008-09 WHEREIN THE CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE ON THE GROUND THAT THE AO HAS NOT REDUCED THE SAME BECAUSE AS PER PARA 3 OF THE ASSESSMENT ORDER, THERE WAS NO BR OUGHT FORWARD DEPRECIATION EXISTING FOR SET OFF. THE CIT(A) NOTE D THAT THE POSITION WAS SIMILAR FOR THE YEAR UNDER CONSIDERATION ALSO. 7. WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT(A PPEALS) WHO HAS HELD THAT SINCE THE AO HAS NOT SET OFF BROUGHT FORW ARD UNABSORBED DEPRECIATION AGAINST THE PROFIT OF UNDERTAKING OF T HE CURRENT YEAR, THUS THE GROUND OF APPEAL IS NOT MAINTAINABLE AND HENCE DISM ISSED. 8. THE CIT(A) FURTHER OBSERVED, HOWEVER, THAT BROUG HT FORWARD UNABSORBED DEPRECIATION RELATES FOR THE A.Y. 2006-0 7 AND EFFECT TO THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA OUG HT TO HAVE BEEN SOUGHT IN PREVIOUS YEAR FOR A.Y. 2006-07 AND NOT IN THE PR ESENT APPEAL. 9. IN OUR OPINION, SINCE THERE IS NO BROUGHT FORWAR D DEPRECIATION EXISTING FOR SET OFF, THE FIRST GROUND OF APPEAL I S DISMISSED AS PURELY ACADEMIC AND NOT MAINTAINABLE. ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 5 OF 28 10. THE SECOND GROUND OF APPEAL RAISED BY THE ASSES SEE BEFORE US IS AS FOLLOWS:- 2. THIRD PARTY/DEEMED EXPORT A) THE A.O. WAS NOT CORRECT IN NOT CONSIDERING DEE MED EXPORT OF RS.797,60,585/- AS PART OF EXPORT TURN OV ER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S.10B, THOUGH THE APPELLANT HAS EXPORTED THE GOODS MANUFACTURED BY TH E APPELLANT COMPANY (I.E.100% EOU) THROUGH A THIRD PARTY. B) THE A.O. WAS NOT CORRECT IN NOT FOLLOWING THE D ECISION OF ITAT B BENCH BANGALORE IN THE APPELLANTS OWN CAS E FOR THE AY 2006-07 AND HAS NOT MAINTAINED THE JUDICIAL DISC IPLINE.(ITA NO. ITA NO.814/BANG/2009 DATED 19.03.2010). THE A.O. HELD AS FOLLOWS : ON PERUSAL OF THE COMPUTATION OF 10B FILED BY THE ASSESSEE COMPANY IT WAS OBSERVED THAT THE ASSESSEE COMPANY HAS INCLUDED DEEMED EX PORT AMOUNTING TO RS.7,97,60,585/ - IN EXPORT T URNOVER FOR THE PURPOSE OF COMPUTATION OF DED UCTION U/S. LOB. THE COMPANY WAS ASKED TO EXPLAIN WHY THE SAME SHOULD NOT BE EXCLUDED FROM EX PORT TURNOVER IN THE LIGHT OF DECISION OF IT AT, BANGALORE IN THE CASE OF GRANITE ~ART LTD, FOR A Y 2005-06.THE ASSESSEE COMPANY REPLIED VIDE LETTER DATED 25.10.2011 STATING THAT THE ASSESSEE'S CLAIM FOR THIRD PARTY EXPORT HA S BEEN ALLOWED BY THE HON'BLE IT AT OF BANGALORE FOR A Y 2006-07 IN ASSESSEE'S OWN CASE AND THE SAME IS FURTHER CONFIRMED BY CIT(A)-I, BANGALOR E FOR A Y 07-08. 6. THE REPLY OF THE ASSESSEE COMPANY IS NOT TENABLE AS DEPARTMENT HAS NOT ACCEPTED THE ABOVE SAID DECISIONS AND FURTHER APPEALS ARE PENDING BEFORE HIGHER APPELLATE AUTHORITIES. FROM T HE DETAILS FURNISHED, IT WAS FOUND THAT THE ASSESSEE H AS CLAIMED EXEMPTION UNDER SECTION LOB ON ACCOUNT OF DEEMED EXPORTS TO THE EXTENT OF RS. 7,97,60,58!5/-. ON THIS ISSUE OF DEEMED-EXPO RTS, DETAILED REASONS ARE GIVEN BY THE ASSESSIN G OFFICER ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 6 OF 28 IN THE ASSESSMENT ORDER FOR THE A.Y. 2006-0 7, 2007- 08 AND 2008-09 WHILE MAKING ADDITION BY DISALLOWING DEDUCTION U/S. LOB OF THE IT ACT TO THE CORRESPONDING EXTENT OF DEEMED E XPORTS WHILE DETERMINING THE TOTAL INCOME. 7. FROM THE RELEVANT DETAILS FILED WITH R EGARD TO DEEMED EXPORTS IT IS CLEAR THAT IT WAS THE MERCHANT EXPORTERS WHO MADE EXPORTS TO VARIOUS PART IES AND AGAIN IT WAS MERCHANT EXPORTERS ONLY WHO RECEIVED CONSIDERATION IN FOREIGN EXCHANGE. ONCE THE MERCHANT EXPORTERS BAGGED THE ORDERS THE ASSESSEE STEPPED IN AND SUPPLIED THE MATERIA LS IN THE NAME OF THE MERCHANT EXPORTERS. THE EXPORT PROCEEDS DIRECTLY WENT TO THE MERCHANT EXPORTERS. THE ASSESSEE IN TURN RECEIVE D SUMS ONLY IN 1NDIAN RUPEES FOR SUPPLYING THE MATERIAL TO THE MERCHANT EXPORTER. THE CONTENTION OF THE ASSESSEE IS THAT SUCH 'DEEMED EXPORTS' ARE ELIGIBLE FOR DEDUCTION U/S. 10B. 8. HOWEVER THE SAID CONTENTION OF THE A SSESSEE COMPANY IS NOT ACCEPTABLE. THE WORD' DEEMED EXPORTS' DOES NOT APPEAR IN THE S.10B OF THE INCOME TAX ACT, 1961. UNLIKE S.80HHC WHICH ALLOWS DEDUCTION TO A SUPPORTING MANUFACTU RER AND 5.80HHE WHERE BENEFIT IS ALLOWED TO A T HIRD PARTY SOFTWARE DEVELOPER, THE LEGISLATURE HAS CONSCIOUSLY AVOIDED INSERTING SUCH A CLAUSE IN 5.10B. WHEREVER THE SECTION WANTS TO CON FER BENEFITS ON AN ASSESSEE THE SECTION EXPR ESSLY PROVIDES FOR IT. IN ABSENCE OF ANY SUCH CL AUSE IN 5.10B IT WOULD BE INCORRECT ON PART OF THE ASSESSEE TO STATE THAT I DEEMED EXPORTS' ARE COVERED BY THE PROVISIONS OF S.10B. 9. IT IS ALSO TO BE NOTED THAT THE ASSESSEE NEVER RECEIVED THE EXPORT PROCEEDS. THE EXPORT P ROCEEDS DIRECTLY WENT TO THE MERCHANT EXPORTERS BECAUSE IT WAS THE MERCHANT EXPORTER WHO GOT THE ORDER FROM THE CUSTOMERS ABROAD. HERE THE ASS ESSEE COMPANY WAS ONLY EXECUTING ORDERS ON BEHALF OF THE MERCHANT EXPORTERS. 10. FURTHER HON,BLE IT AT IN THE CASE OF M/S. GRANITE MART LTD. IN ITA NO.22,763/ BANG/ 2010 DT:17.09.2010 HAS CLEARLY STATED THAT TH E ASSESSEE CANNOT CLAIM DEDUCTION U/ S LOB IN RESPECT OF THE SO ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 7 OF 28 CALLED EXPORTS MADE THROUGH THIRD PARTIES/ EXPORT HOUSES. THE RELEVANT PORTION OF THE ORDER ARE REPRODUCED BELOW: 'THIS ISSUE TO BE CONSIDERED IS WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. LOB IN RESPECT OF TILE SALES MADE THROUGH THIRD P ARTIES. \IT IS THE CASE OF THE ASSESSEE THAT THESE THIRD PARTIES ARE E XPORTS HOUSES AND THEY HOPE EXPORTED ALL SUET: GOODS SOLD BY THE ASSESSEE TO THEM FOR THE PURPOSE OF SUCH EXPOR T ANDAS SUCH THEY ARE ENTITLED FOR DEDUCTION U/S. 10B. I T IS VERY INTERESTING TO NOTE AS STATED ABOVE THAT EVEN A DEEMED SALE MADE TO ANOTHER EXPORT UNIT IS HELD TO BE NOT ELL TITLED FOR D EDUCTION U/S. 10A IN THE CASE ALREADY RELIED ON US IN TATA ELXSI LTD. VS. ACIT. THEREFORE, THE ANSWER TO THIS GROUND IS READILY AVAILABLE IN THAT JUDGMENT ITSELF. BY FOLLOWING TILE RATIO OF THE RATIO OF THE ABOVE JUDGMENT, WE COME TO THE CONCLUSION THAT THE AS. ;CANNOT CLAIM THE DEDUCTION U/S.10B IN RESPECT OF THE SO CALLED EXPORTS MADE THROUGH THIRD PARTIES/EXPORT HOUSES. IN THE ABOVE JUDGMENT, HON'BLE ITAT HAS RELIED ON THE DECISION IN CASE OF TATA ELXSI VS. ACIT. THE RELEVANT PORTION O F THE ORDER ARE REPRODUCED AS UNDER: 'WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED TLTE RECORDS. CHAPTER 8 OF THE EXIM POLICY ISSUED BY THE MINISTRY OF COMMERCE & INDUSTRY DEFINES DEEMED EXPORT' AS UNDER: 8.1 DEEMED EXPORTS REFERS TO THOSE TRANSACTIONS IN WHICH GOODS SUPPLIED DO NOT LEAVE COUNTRY AND PAYMENT FOR SUCH SUPPLIES IS RECEIVED EITHER IN INDIAN RUPEES OR IN FREE FOREIGN EXCHANGE. UNDER CL. 8.3 BENEFIT FOR DEEMED EXPORTS ARE AS UND ER : 8.3 DEEMED EXPORTS SHALL BE ELIGIBLE FOR ANY / A LL OF FOLLOWING BENEFITS IN RESPECT OF MANUFACTURE AND SUPPLY OF GOODS QUALIFYI NG AS DEEMED EXPORTS SUBJECT TO TERMS AND CONDITIONS AS IN HBP V1. A) SUPPLY OF GOODS AGAINST ADVANCE AUTH ORISATION/ADVANCE AUTHORISATION FOR ANNUAL REQUIREMENT/DFLA. B) DEEMED EXPORT DRAWBACK. ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 8 OF 28 C) EXEMPTION FROM TERMINAL EXCISE DUTY WHERE SUPPLIES ARE MADE AGAINST ICB. IN OTHER CASES, REFUND OF TERMINAL EXCISE DUTY WILL BE GIVEN. A CURSORY PERUSAL. WOULD INDICATE THAT SALE OF SU CH SOFTWARE BY ONE STP TO ANOTHER STP WITHIN THE COUNT RY WOULD BE TREATED AS DEEMED EXPORT ONLY FOR THE PURP OSE OF DUTY DRAWBACK AND EXEMPT FROM TERMINAL EXCISE DU TY. AS RIGHTLY CONTENDED BY THE LEARNED D.R. S. 1OA, WITH RELEVANT PROVISO, STOOD DURING THE RELEVANT TIME IT SELF PROVIDES THT WHEN DOMESTIC SALES OF STP UNIT DO NOT EXCEED OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE. T HUS THE PROVISIONS OF S. 1OA AS IT STOOD SPECIALLY PROVIDE HOW MUCH BENEFI T TO BE GIVEN TO THE ASSESSEE IF SALES TO ANOTHER STP WHEN NOT EXCEEDED 25 PER CENT OF THE TOTAL PRODUCTS. THE EXIM POLICY 2002-07 (CHAPTER 6, CL. 6.12) ALSO CLARIFIES OT HER ENTITLEMENTS AS UNDER : '6.12 OTHER ENTITLEMENTS OF EOU / EHTP / S TP / BTP UNITS ARE AS UNDER: A) EXEMPTION FROM INCOME TAX AS PER SS. 10A AND 10B OF IT ACT. FURTHER, FROM THE PERUSAL OF THE EXIM POLICY ( CHNPTER 6) EXTRACTED ABOVE, IT IS SEEN THAT WHATEVER BENE FIT GIVEN SHOULD BE AS PER THE PROVISIONS OF 5S. 10A AND . 10B OF THE IT ACT. APART FROM THE BENEFI T CONFERRED UNDER THE AFORESAID CHAPTER, NOTHING HAS BEEN INDICATED IN RE SPECT OF ANY DEEMED EXPORT WHEN THE ISSUE IS CONSIDERED UNDER THE IT ACT . THE EXIM POLICY EXTRACTED ABOVE (CHAPTER 8.1 AND 8.3) OBVIOUSLY DOES NOT INCLUDE IN RESPECT OF BENEFIT T O BE GIVEN UNDER IT ACT OTHER THAT ONE REFERRED TO UNDER CHAPTER 6.12(A ). WHEN THIS BEING CONSCIOUSLY OMITTED IN THE POLICY, WE DO NOT FIND ANY FORCE IN THE STAND TAKEN BY T HE LEARNED COUNSEL FOR ASSESSEE TO TREAT THE SALES EF FECTED TO OTHER STP BY THE ASSESSEE AS DEEMED EXPORT. THIS G ROUND FAILS. 11. IN ASSESSEE'S OWN CASE FOR AY 2008-09 CIT(A ) HELD THAT DEEMED EXPORT CANNOT BE TREATED AS E XPORT FOR THE PURPOSE OF DEDUCTION U/S. 1OB AND DISMIS SED THE APPEAL FILED BY THE ASSESSEE. IN THE VIEW OF SAME AND THE ORDER PASSED BY HON'BLE ITAT IN THE CAS E M/ S GRANITE MART LTD, THE ASSESSEE COMPANY CANNOT CLAIM BENEFIT U/S.1OB ON ACCOUNT OF EXPORTS MADE BY ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 9 OF 28 MERCHANT EXPORTER AND THEREFORE THE CLAIM OF DEDUCTION U/S. LOB ON SUCH EXPORTS I.E. DEEMED EXPORTS IS DENIED. ACCORDINGLY THE EXPORT TURN OVER HAS BEEN DETERMINED AFTER EXCLUDING T HE DEEMED EXPORTS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 10B OF THE IT ACT. 10(A) WE FIND THAT THE ITAT, B BENCH IN ITA NO .814/BANG/2009 A.Y. 2006- 07 HELD AS FOLLOWS :- 3. THE NEXT ISSUE IS WITH REGARDS TO EXCLUSION OF DEEMED EXPORTS AMOUNTING TO RS.;13,05,22,177 FOR THE PURPOSE OF CA LCULATING DEDUCTION U/S. 10B. IN APPEAL , THE CIT(A) GRANTED RELIEF. WE FIND THAT THE AS. FILED DECLARATION FROM M/S. S.K. INTERNATIONAL, NEW DELHI AS WELL AS M/S. ELE STONES (INDIA) PVT. LTD., CERTIFYING THE PAYMENTS O F RS.9,76,52,462 & RS.3,28,69,715 TOTALING RS.;13,05,22,177 HAD BEEN R EALISED IN CONVERTIBLE FOREIGN EXCHANGE AGAINST MATERIALS PURCHASED FROM T HE ASSESSEE UNDER THE THIRD PARTY EXPORT BASIS. THE CHAPTER VI OF THE FOR EIGN TRADE POLICY AS WELL AS THE POLICY STATEMENT OF THE GOVERNMENT OF I NDIA CLARIFIES THAT EVEN THE THIRD PARTY EXPORTS WERE ELIGIBLE FOR BENEFIT A VAILABLE U/S. 10B OF THE ACT. THE THIRD PARTY EXPORTS ARE ALSO CONSIDERED AS EXPORTS AND SINCE THE CONSIDERATION IN RESPECT OF SUCH THIRD PARTY EXPORT S MADE BY 100% EOU WHICH MANUFACTURES THE ARTICLE OR THINGS ARE RECEIV ED IN OR BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE, EITHER BY TG HE 100% EOU ITSELF OR THROUGH THE THIRD PARTY EXPORTER THEN SUCH EXPORTS AMOUNTS TO EXPORT TURNOVER AND ARE FULLY ELIGIBLE FOR BENEFITS U/S. 1 0B OF THE IT ACT. THE THREE ESSENTIAL INGREDIENTS OF EXPORTS WAS FOUND TO BE PRESENT IN THE INSTANT CASE WHICH READS AS UNDER : 1. THE GOODS ARE MANUFACTURED BY 100% EOU. 2. THE GOODS ARE EXPORTED OUT OF THE COUNTRY AS PER FT P PROVISIONS. 3. CONVERTIBLE FOREIGN EXCHANGE IS BROUGHT INTO INDIA. 4. THE CIT(A) OBSERVED FROM THE SUMMARY OF YEAR WISE D IRECT EXPORTS AND EXPORTS MADE THROUGH THIRD PARTIES FURNISHED BY THE ASSESSEE THAT IT HAS BEEN CONSISTENTLY INDULGING IN EXPORT T HOUGH THIRD PARTY MAINLY M/S. S.K. ;INTERNATIONAL AND M/S. ELE STONES (INDIA) LTD. ON RECEIPT OF CONFIRMED EXPORT ORDERS FROM RESPECTI VE OVERSEAS CUSTOMERS FOR EXPORT CUT AND POLISHED GRANITE SLABS , TITLES, SLATES ETC. THE ABOVE PARTIES PLACED PURCHASE ORDERS ON TH E ASSESSEE ALONG WITH DISCLAIMER CERTIFICATES DECLARING THAT THEY WI LL NOT BE CLAIMING EXPORT BENEFIT ON THE THIRD PARTY EXPORT SALES MADE BY THEM THEREBY TRANSFERRING THE SAME TO THE MANUFACTURERS VIZ. THE ASSESSEE AND ALSO SIMULTANEOUSLY UNDERTAKING TO INDICATE THE ASS ESSEE AS THE 100% EOU MANUFACTURER OF THE MATERIALS BEING EXPORT ED IN THE SHIPPING BILLS FILED WITH THE CUSTOMS AUTHORITIES. COPIES OF PURCHASE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 10 OF 28 ORDERS, INVOICES, DISCLAIMER CERTIFICATES, APPLICAT ION MADE FOR REMOVAL OF EXCISABLE GOODS FOR EXPORT (FORM A.R.E. 1) & SHIPPING BILLS WERE PRODUCED BEFORE CIT(A) TO SUBSTANTIATE. IN VIEW OF THE FOREGOING ANALYSIS AND IN THE LIGHT OF THE INCONVER TIBLE EVIDENCE FILED ON BEHALF OF ASSESSEE, THE CIT(A) HELD THAT T HE DEEMED EXPORT TOTALLING TO RS.;13,05,22,177 SHOULD NOT BE EXCLUDE D FOR THE PURPOSE OF CALCULATING DEDUCTION U/S.10B OF THE IT ACT. WE UPHOLD THE SAME. 10 (B) THE CO-ORDINATE BENCH IN ITA NO.888/BANG/ 2010 FOR THE A.Y.2007-08 HELD AS FOLLOWS : 13. NOW, WE TAKE UP THE APPEAL OF THE REVENUE. GRIEVANCE OF THE REVENUE IS THAT LEARNED CIT(A) DEEMED EXPORTS OF RS .;13,20,96,953 ALSO AS PART OF EXPORT TURNOVER FOR COMPUTING ELIGI BLE DEDUCTION UNDER SECTION 10B. AS PER THE REVENUE SUCH DIRECTIONS WE RE GIVEN DISREGARDING DECISION OF THE CO-ORDINATE BENCH IN T HE CASE OF M/S. TATA ELXSI LTD. VS. ACIT 115 TTJ 423. FURTHER, AS PER THE REVENUE THE REASONING GIVEN BY THE LEARNED CIT(A) WAS NOT I N ACCORDANCE WITH SECTION 10B(3) AND DEFINITION OF EXPORT TURNOVER IN EXPLANATION (III). 14. LEARNED DR STRONGLY ASSAILING THE ORDER OF THE LEARNED CIT(A) SUBMITTED THAT CO-ORDINATE BENCH HAD IN THE CASE OF M/S. GRANITE MART LTD. VS. ITO (ITA NO.22 & 763/BANG/2010 DATED 17.0 9.2010) HELD THAT NEITHER DEEMED EXPORTS, NOR THIRD PARTIES EXPO RT WOULD BE ELIGIBLE FOR A CLAIM OF DEDUCTION UNDER SECTION LOB OF THE ACT, THAT TOO, AFTER CONSIDERING THE DECISION OF M/S. TATA ELXSI LTD., (SUPRA). RELIANCE WAS ALSO PLACED ON THE DECISION OF HYDERABAD BENCH OF THIS TRIBUNAL IN THE CASE OF ACI T VS. BADHRA CONSULTING LTD.,(2010) 134 TTJ 214 AND THE JUDGMENT OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS ELECTRONIC CONTROLS & DISCHARGE SYSTEMS (P) LTD., (2011) 245 CTR 465. 15. PER CONTRA, LEARNED AR PLACING RELI ANCE ON A CO- ORDINATE BENCH DECISION DATED 19-10-2010 IN REVENUE'S APPEAL ITA NO.814/BANG/2009 WHERE ASSESSEE WAS THE RESPONDENT, SUBMITTED THAT FOR ASSESSMENT YEAR 2006-07, THE ISSUE WAS DECIDED IN FAVOUR OF T HE ASSESSEE BY THE LEARNED CIT(A) AND THIS WAS CONFIRMED BY THE TRIBUNAL. RELIANCE WAS ALSO PLACED ON THE DECISION OF CHENNAI BENCH OF THIS TRIBUNAL IN THE CASE OF CIT VS JANANI HOLDING(ITA NO.1094/MDS/20 10 DATED 28-02-2011). 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. ASSESSEE HAD INCLUDED DEEMED EXPORTS OF RS.13,20,96,9531- AS A PART OF ITS EXPORT TURNOVER WHILE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 11 OF 28 CLAIMING DEDUCTION UNDER SECTION 1OB. AO HAD DISALLOWED THIS CLAIM FOR A REASON THAT EXPOR TS WERE EFFECTED BY THE MERCHANT EXPORTERS, WHO ALONE HAD RECEIVED THE FOREIGN EXCHANGE. AO ALSO NOTED THAT ASSESSEE HAD RECEIVED T HE CONSIDERATION FOR SALE FROM SUCH MERCHANT EXPORTERS ONLY IN INDIAN RUPEE AND THERE WAS NO CONCEPT OF 'DEEMED EXPORTS' IN SECTION 1OB OF THE ACT. LEARNED CIT(A), ACCEPTED THE CLAIM OF THE ASSESSEE, NOTING THAT CO-ORDINATE BENCH DECISION IN TATA ELXSI LTD., CASE (SUPRA), TH OUGH A DETAILED AND WELL REASONED ONE WAS GIVEN PRIOR TO THE DECISION IN ASSESSEE'S CASE FOR AY: 2006-07. HE PREFERRED TO FOLLOW THE LATTER. OBSERVATION OF THE CO-ORDINATE BENCH IN REVENUE'S APPEAL FOR AY: 2006-07 (ITA NO.814(B)/2009 DATED 19-03-2010) ON THIS ISSUE READS AS UNDER : THE CIT(A) OBSERVED FROM THE SUMMARY OF YEAR WISE DIRECT EXPORTS AND EXPORTS MADE TH ROUGH THIRD PARTIES FURNISHED BY THE ASSESSEE THAT IT HAS BEEN CONSISTENTLY INDULGING IN EXPORT THROUGH THIRD PARTY MAINLY M/S. S.K.INTERNATIONAL AND M/S. ELE STONES (IND.) LTD., ON RECEIPT OF CONFIRMED EXPORT ORDERS FROM RESPECTIVE OVERSEAS CUSTOMERS FOR EXPORT CUT AND POLISHED GRANITE SLABS, TITLES, SLATES ETC., THE ABOVE PARTIES PLACED PURCHASE ORDERS ON THE ASSESSEE ALONG WITH DISCLAIMER CERTIFICATES DECLARING THAT THEY WILL NOT BE CLAIMING EXPORT BENEFIT ON THE THIRD PARTY EXPORT SALES MADE BY THEM THEREBY TRANSFERRING THE SAME TO THE MANUFACTURERS VIZ., THE ASSESSEE AND ALSO SIMULTANEOUSLY UNDERTAKING TO INDICATE THE ASSESSEE AS THE 100% EOU MANUFACTURER OF THE MATERIALS BEING EXPORTED IN THE SHIPPING BILLS FIL ED WITH THE CUSTOMS AUTHORITIES. COPIES OF PURCHASE ORDERS, INVOICES, DISCLAIMER CERTIFICATES, APPLICATION MADE FOR REMOVAL OF EXCISABLE GOODS FOR EXPORT (FORM A.R.E 1) & SHIPPING BILLS WERE PRODUCED BEFORE THE CIT(A} TO SUBSTANTIATE. IN VIEW OF THE FOREGOING ANALYSIS AND IN THE LIGHT OF THE INCONTROVERTIBLE EVIDENCE FILED ON BEHALF OF ASSESSEE, THE CIT(A) HELD THAT THE DEEMED EXPORT TOTALING RS.13,05,22,177/- SHOULD NOT BE EXCLUDED FOR THE PURPOSE OF CALCULATING DEDUCTION U/S. 10B OF THE IT ACT. WE UPHOLD THE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 12 OF 28 SAME. AS AGAINST THIS CO-ORDINATE BENCH O F THIS TRIBUNAL IN THE CASE OF GRANITE MART LTD.,(SUPRA), HELD AS UN DER AT PARA-8 & 9 OF ITS ORDER DATED 17-09-2010. 8. NEXT, WE WILL CONSIDER THE GROUND RAISED BY THE ASSESSEE M RESPECT OF. THE CLAIM OF EXEMPTION MADE U/ S LOB ON THE SALES MADE TO ANOTHER EXPORT ORIENTED UNITS. THIS ISSUE WAS ALSO CONSIDERED BY THE ITAT A BENCH IN THE CASE MENTIONED ABOVE IE. TATA ELXSI LTD , VS A CIT, 115 TT J 423. AFTER EXAMINING THE SCHEME OF SECTION U/ S LOA WHICH IS IN PARI P ASSU TO SEC. 1 OB, THE TRIBUNAL HELD THAT SUCH DEEMED EXPOR T IS ENTITLED ONLY FOR THE BENEFITS OF DUTY DRAW B ACK AND EXEMPTION FROM BASIC EXCISE DUTY. SUCH DEE MED EXPORTS DO NOT GET ENTITLED FOR THE DEDUCTI ON. U/ S LOA. AS THE ABOVE JUDGMENT SQUARELY APPLIES TO THE PRESENT CASE, WE HOLD THAT THE ASSESSEE COMPANY IS NOT ENTITLED FOR DEDUCTION U/ SLOB IN RESPEC T OF SALES MADE TO OTHER EXPORT UNITS. THIS GROUND OF THE ASSESSEE IS REJECTED. 9. THE THIRD ISSUE TO BE CONSIDERED IS WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. LOB IN RESPECT OF -TTIE SALES MADE THROUGH THIRD PARTIES. IT IS THE CASE OJ THE ASSESSEE THAT THESE THIRD PARTIES ARE EXPORT HOUSES AND THEY HAVE EXPORTED ALL SUCH GOODS SOLD BY THE ASSESSEE TO THEM FOR THE PURPOSE OF SUCH EXPORT AND AS SUCH THEY ARE ENTITLED FOR DEDUCTION U/S. LOB. IT IS VERY INTERESTING TO NOTE AS STATED ABOVE THAT EVEN A DEEMED SALE MADE TO ANOTHER EXPORT UNIT IS H ELD TOBE NOT ENTITLED FOR DEDUCTION U/S. 10A INTHE CASE ALREADY RELIED ONUS IN TATA ELXSI LTD VS. ACIT. THEREFORE, THE ANSWER TO THIS GROUND IS READILY AVAILABLE IN THAT JUDGMENT ITSELF . BY FOLLOWING THE RATIO OF THE ABOVE JUDGMENT, WE COME TO THE CONCLUSION THAT THE AS. CANNOT CLAIM THE DEDUCTION U/S.10B IN RESPECT OF THE SO-CALLED EXPORTS MADE THROUGH THIRD PARTIES/EXPORT HOUSES. 17. THUS IN THE CASE OF GRANIT MART LTD. (SUPRA), CO-ORDINATE BENCH DECISION IN TATA ELXSI LTD. (SUPRA) HAS BEEN CONSIDERED. HOWEV ER, IN THE FORMER DECISION DT.19.3.2010, THOUGH IT WAS IN ASSESSEES OWN CASE, AND THOUGH A REFERENCE HAS BEEN MADE AT PARA TWO TO TATA ELXSI LTD. DECISION, THIS WAS IN RELATION TO THE CLAIM ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 13 OF 28 OF THE ASSESSEE FOR EXCLUDING TRANSPORT & INSURANCE CHARGES BOTH FROM EXPORT TURNOVER AND TOTAL TURNOVER. 18. IN ANY CASE, WE FIND THAT HONBLE KERALA HIGH COURT IN THE CASE OF ELECTRONIC CONTROLS & DISCHARGE SYSTEMS (P) LTD. , (SUPRA), IN A JUDGMENT RENDERED ON 27 TH JULY, 2011 HAS CONSIDERED THE VERY SAME ISSUE. THE TRIBUNAL FURTHER HELD : 19. ONCE A HIGH COURT HAS GIVEN A JUDGMENT, THOU GH A NON-JURISDICTIONAL ONE, WE ARE BOUND TO FOLLOW IT, UNLESS ASSESSEE IS ABLE TO SHOW A CONTRARY JUDGMENT FROM THE JURISDICTIONAL HIGH COURT. DECISIONS OF L OWER AUTHORITIES WOULD PALE INTO INSIGNIFICANCE. ASSESSEE HERE HAS NOT BEEN ABLE TO BRING ANY DECISION FROM THE JURISDICTIONAL HIGH COURT, WHICH GO IN ITS FAVOUR. WE THEREFORE, ARE INCLINED TO FOLLOW THE VIEW TAKEN BY THE KERALA HIGH COURT. WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE ORDER OF THE LEARNED A.O. AND DIRECT THAT DEEMED EXPORTS SHALL NOT BE CONSIDERED AS PART OF EXPORT T URNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT, 1961. 11. THE CIT(APPEALS) HELD AS FOLLOWS:- SIMILAR ISSUE HAS BEEN RAISED IN APPEAL FOR THE AS SESSMENT YEAR 2008-09 AND MY PREDECESSOR DISMISSED THE APPELLANT S GROUND OF APPEAL BY OBSERVING THUS :- 7.1. THIS ISSUE HAD BEEN DECIDED IN FAVOUR OF THE APPELLANT IN ITA.NO.125/DC-11(4)/A-I/09-10, DT.29-04-2010 BY THE CIT(A) FOLLOWING DECISION OF ITAT IN ITS OWN CASE OF A.Y. 2006-07 DISREGARDING THE EARLIER DECISION OF THE SAME ITAT IN THE CASE OF M/S. TATA ELXSI VS. ACIT (A. Y.2002-03) 115 JTJ (BA NG) 423. HOWEVER THE A.O. HAS CITED THE MOST RECENT JUDGEMEN T OF THE ITAT ON THE SAME ISSUE VIDE., M/S. GRANITE MART LTD ., (A. Y. 2005-0 6) DT. 17-09-2010. 7.2. IN VIEW OF SUCH LATEST DECISION BROUGHT TO MY KNOWLEDGE BY THE ASSESSMENT ORDER I HAVE NO OTHER GO BUT TO D ISMISS THIS GROUND OF APPEAL, ALTHOUGH ALLOWED IN APPEAL OF AY- 2007-08. GROUND OF APPEAL IS DISMISSED. 12. FOLLOWING THE DECISION OF THE ITAT IN ITA NO.88 8/BANG/2010 FOR THE A.Y. 2007-08 AT PARA 10(B), WE DIRECT THAT DEEMED EXPORTS SHALL NOT BE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 14 OF 28 CONSIDERED AS PART OF THE EXPORT TURNOVER WHILE COM PUTING DEDUCTION U/S. 10B OF THE IT ACT, 1961. 13. THE 3 RD GROUND OF APPEAL READS AS FOLLOWS:- 3) TRADED GOODS A) THE APPELLANT HAS TAKEN ADDITIONAL GROUND BEFOR E THE A.O. AT THE TIME OF SCRUTINY ASSESSMENT, ABOUT CONSIDERI NG THE TRADED GOODS OF RS.8,64,86,069/- AS PART OF EXPORT TURNOVE R FOR THE PURPOSE OF CALCULATION OF DEDUCTION UNDER SECTION 1 0B AS ALL THESE TRADED GOODS ARE EXPORTED OUT OF INDIA AND THE PROC EEDS ARE RECEIVED IN FOREIGN EXCHANGE WITH IN THE STIPULATED TIME. B) THE A.O. HAS ERRED IN NOT CONSIDERING AND APPRE CIATING THE PROVISIONS OF LAW AS DETAILED IN SECTION 10B AND NO T FOLLOWING THE DECISION OF HONBLE TRIBUNAL OF MUMBAI IN THE MATTE R OF T. TWO INTERNATIONAL (P) LTD. 26 SOT 582 (MUM) 2008. C) THE CIT (A) WAS NOT CORRECT IN NOT CONSIDERING THE ADDITIONAL GROUND FILED BEFORE HIM ON 13.01.2014 IN RESPECT OF ALTERNATIVE GROUND ON EXPORT OF TRADED GOODS BEING: IF THE EXPORT OF TRADED GOODS IS REDUCED FROM EXPORT TURNO VER, THE SAME AMOUNT IS TO BE REDUCED FROM TOTAL TURNOVER FO R THE PURPOSE OF CALCULATION OF DEDUCTION U/S.10B BY FOLLOWING TH E ORDER OF JURISDICTIONAL HONBLE ITAT IN THE MATTER TO SUBEX LTD (ITA NO.1430/B2010 DATED 13.11.2013). 14. WITH RESPECT TO EXPORT OF TRADED GOODS, THE FAC TS ARE THAT THE ASSESSEE HAS PURCHASED CERTAIN GRANITE MATERIAL FRO M THE LOCAL BUYERS (INCLUDING EOU UNITS) AND EXPORTED SUCH MATERIAL UN DER ASSESSEES LC FROM CHENNAI PORT. THE ASSESSEES PURCHASES ARE DO MESTIC PURCHASES AND THE SALE OF ALL TRADED GOODS ARE EXPORT TURNOVER. THE ASSESSEE STRONGLY RELIED BEFORE THE CIT(APPEA LS) ON THE DECISION OF ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 15 OF 28 MUMBAI TRIBUNAL IN THE MATTER OF T. TWO INTERNATIONAL (P) LTD. 26 SOT 583 (MUM) 2008 , WHEREIN THE PROVISIONS OF SECTION 10B ARE CLEARLY EXAMINED AND INTERPRETED AND SUBMITTED THAT THOUGH THE DECIS ION IS FOR THE AY 2001- 02, THERE IS NO SUBSTANTIAL CHANGE IN PROVISIONS OF SECTION 10 AFTER THAT DATE. THE ASSESSEE FURTHER RELIED ON THE DECISION OF HONBLE ITAT SPECIAL BENCH, INDORE IN THE MATTER OF MARAL OVERSEAS LTD VS. ADDL. CIT, , RANGE 5, INDORE VIDE ITA NO.777 & 900 OF 2004 AND 295 & 296 OF 200 6 DATED 28.03.2012, WHERE IN AT PAGES 32 TO 36 (FROM PARA 7 7UP TO PARA 80), IT HAS DISCUSSED THE ELIGIBILITY OF DEDUCTION IN RESPECT O F EXPORT INCENTIVES RECEIVED BY THE ASSESSEE IN TERM OF PROVISION OF SE CTION 10B(1) READ WITH SECTION 10B (4) OF THE ACT AND CONCLUDED AS FOLLOWS :- THOUGH SECTION 10B (1) REFERS TO PROFITS DERIVED BY THE EOU, THE MANNER OF DETERMINING SUCH ELIGIBLE PROFITS HAS TO BE DONE AS PER THE FORMULA. SECTION 10B (4) DOES NOT REQUIRE A N ASSESSEE. TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE U NDERTAKING AND ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE UN DERTAKING, THE SAME WOULD BE INCLUDED IN THE PROFITS OF THE BUSINE SS OF THE UNDERTAKING AND BE ELIGIBLE FOR DEDUCTION. 15. THE CIT(APPEALS) OBSERVED THAT THE AO POINTED O UT IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS NOT FILED RE VISED FORM 56G FOR TRADED GOODS. ACCORDING TO THE ASSESSEE, THE AO H AD NOT INSTRUCTED FOR FILING OF REVISED FORM 56G AT THE TIME OF SCRUTINY ASSESSMENT AND HENCE THE SAME WAS NOT FILED BEFORE THE AO. HOWEVER, THE ASSESSEE FILED REVISED FROM 56G FOR TRADED GOODS BEFORE HIM. ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 16 OF 28 16. THE CIT(APPEALS) HELD AS FOLLOWS:- 5.1 SIMILAR ISSUE HAS BEEN RAISED IN APPEAL FOR AS SESSMENT YEAR 2007-08 AND MY PREDECESSOR DECIDED THE ISSUE BY HOL DING THUS:- 5.2. THE GROUND AS WELL AS THE CITATION WAS CONSI DERED. FIRSTLY, IT MUST BE POINTED OUT THAT THE DECISION IS NOT FRO M JURISDICTIONAL ITAT AND THEREFORE NOT BINDING. SECONDLY, I FIND TH E ITAT ITSELF, BEFORE GIVING DECISION IN PARA 9.2. OF THE ORDER ST ATED THAT NOT MUCH PRECEDENTS ARE AVAILABLE BEING THE FIRST YEAR OF IMPLEMENTATION OF CHANGED LAW FROM 1-4-2001 AND THE ISSUE BEING VIRGIN, THERE IS SCOPE FOR MUCH DELIBERATION ON EACH ISSUE RAISED IN THAT APPEAL. THIRDLY, I CONSIDER THE WORD DERIVED IS MOST IMPORTANT IN THE FRAME WORK PROVIDING FOR DEDU CTION EITHER U/S.10A OR U/S.10B OF I.T.ACT. THE WORD DERIVE SH OWS AND MEANS A DIRECT CONNECTION/NEXUS AS DISTINGUISHED FR OM THE CONCEPT OF ATTRIBUTABLE TO. THE WORD DERIVED BY THE ASSESSEE IMPLIES THERE MUST BE DIRECT NEXUS AMONGST - (I) THE MANUFACTURE AND (II) EXPORT AND ALSO (III) THE RECEIPTS OF SALE PROCEEDS IN CFE AND IF ONE IS LACKING, THE SAME WOULD NOT BE ENTITL ED TO BE COVERED IN THE DEFINITION OF EXPORT TURNOVER. ADM ITTEDLY, EXPORTED /TRADED GOODS ARE NOT MANUFACTURED OR PROD UCED BY THE APPELLANT. THEY ARE PURCHASED FROM OTHER TRADE CONC ERNS IN INDIA AND THEN EXPORTED. THE INSERTION OF SEC.10B IS INTE NDED NOT ONLY TO ENHANCE THE FOREIGN EXCHANGE RESERVE BUT ALSO TO PROVIDE INCENTIVE TO SET UP NEW INDUSTRIAL UNDERTAKINGS. TH US, SEC.10B IS APPLICABLE ONLY WHEN THE GOODS EXPORTED OUT OF INDI A MUST BE PRODUCED BY THE SAME INDUSTRIAL UNDERTAKING AND NOT ONLY THAT THE SALE PROCEEDS IN CFE MUST ALSO BE RECEIVED BY THE A SSESSEE. IN FACT, ALL THIS HAS BEEN SUMMARISED IN CIRCULAR NO.1/2005 DATED: 6-1-2005 IN THE BEGINN ING WHEN IT STATES SECTION 10B OF THE I.T.ACT PROVIDES FOR 100% DEDUC TION OF PROFITS DERIVED BY A HUNDRED PERCENT EOU FROM EXPOR T OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURE D OR PRODUCED BY IT (UNDERLINES ARE MINE FOR EMPHASIS) ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 17 OF 28 THIS CIRCULAR IS BINDING AND THEREFORE HAS TO BE GI VEN STRICT INTERPRETATION. THUS, SINCE THE TRADED GOODS EXPORT ED ARE NOT MANUFACTURED BY THE APPELLANT, IT CANNOT BE TREATED AS EXPORT TURNOVER EVEN IF THE SALE PROCEEDS ARE RECEIVED IN CFE BY THE APPELLANT. 17. THE CIT(APPEALS) CONCLUDED THAT SECTION 10B PRO VIDES ITSELF IN IT, THE STIPULATION THAT EXPORTED GOODS MUST BE THE GOODS O R ARTICLES PRODUCED/MANUFACTURED IN THE 100% EOU AS CAN BE DED UCED FROM THE WORD DERIVED BY IN SECTION 10B(1). ACCORDING TO THE CIT(A), THE CONDITION OF MANUFACTURE OF EXPORTED GOODS IS A MANDATE ENSHR INED IN SECTION 10B(1) OF I.T. ACT WHICH CANNOT BE OVERLOOKED WHILE DETERM INING THE EXPORT TURNOVER. HENCE, THE CIT(A) DISMISSED THIS ISSUE. 18. THE COORDINATE BENCH OF THIS TRIBUNAL ON A SIMI LAR ISSUE IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007-08 IN ITA NO. 888(BANG)2010 BY ORDER DATED 05.09.2014 HAS HELD AS FOLLOWS:- 11. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE CLAIM ON TRADED GOODS TO BE CONSIDERED AS PART OF ITS BUSINESS WAS FIRST MAD E BY THE ASSESSEE BEFORE THE CIT(A). ASSESSEE HAD NEVER MADE SUCH A C LAIM IN ITS RETURN OR BEFORE THE AO. BE THAT AS IT MAY, ASSESSE E IS MAKING THIS CLAIM BASED ON THE DECISION OF MUMBAI BENCH IN THE CASE OF M/S T TWO INTERNATIONAL (P) LTD., CLAIM IN THAT CASE WAS ALSO ON DEDUCTION UNDER SECTION 10A ON PROFIT FROM EXPORT OF TRADED G OODS. IT WAS HELD BY THE CO-ORDINATE BENCH AS UNDER, AT PARA-10 OF IT S ORDER: 10. THE LEARNED CIT(A) HAS NOT GRANTED DEDUCTION T O THE ASSESSEE INSOFAR AS IT RELATES TO THE PROFIT FROM E XPORT OF TRADING GOODS. FROM THE ABOVE TABLE, IT CAN BE SEEN THAT TH E ASSESSEE MADE EXPORT BY TRADING IN GOODS AT RS. 3.23 CRORES ON WHICH DEDUCTION WAS CLAIMED. THE LEARNED CIT(A) OPINED T HAT SINCE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 18 OF 28 SUCH EXPORTS DO NOT RELATE TO THE GOODS MANUFACTURE D BY THE ASSESSEE, HENCE THE BENEFIT OF DEDUCTION CANNOT BE ALLOWED. WE ARE NOT CONVINCED WITH THE VIEW CANVASSED BY THE LE ARNED CIT(A) BECAUSE SUB-SECTION (1) OF SECTION 10A ALLOWS DEDUC TION IN RESPECT OF PROFITS AND GAINS DERIVED BY AN ELIGIBLE UNDERTAKING 'FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE'. THE LATER PART OF THIS SUB-SECTION PROVIDES THAT THIS D EDUCTION IS AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMEN T YEARS STARTING WITH THE 'ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SU CH ARTICLES OR THINGS OR COMPUTER SOFTWARE'. THE REFERENCE TO MANU FACTURE OR PRODUCTION OF ELIGIBLE ARTICLES IS ONLY FOR THE PUR POSES OF SETTLING THE FIRST YEAR OF THE TEN CONSECUTIVE ASSESSMENT YE ARS IN WHICH THE ASSESSEE WILL BE ENTITLED TO DEDUCTION UNDER THIS S ECTION. THE QUALIFYING AMOUNT FOR DEDUCTION IS THE 'PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE'. SUCH ELIGIBLE ARTICLES ARE NOT RESTRICTED TO ONLY THOSE WHICH ARE PRODUCED OR MANUFACTURED BY TH E ASSESSEE. THE MATERIAL CONSIDERATION IS THE EXPORT OF THE ELI GIBLE GOODS AND NOT WHETHER THESE ARE MANUFACTURED OR PURCHASED BY THE ASSESSEE. SECTION 10A IS AKIN TO SECTION 80HHC IN SOME RESPEC TS, AS WILL BE SEEN INFRA AND THE LATER SECTION ALSO PROVIDES F OR DEDUCTION IN RESPECT OF PROFITS FROM THE EXPORT OF THE GOODS OR MERCHANDISE MANUFACTURED BY THE ASSESSEE AS WELL AS FROM THE EX PORT OF TRADING GOODS. THUS PROFITS FROM BOTH THE SELF MANU FACTURED AS WELL AS TRADING IN GOODS HAVE BEEN MADE ELIGIBLE FO R DEDUCTION. IF THE INTENTION OF THE LEGISLATURE HAD BEEN TO RESTRI CT THE DEDUCTION ONLY FROM THE MANUFACTURING ACTIVITY, THEN IT WOULD HAVE BEEN PROVIDED SO IN UNAMBIGUOUS TERMS IN THE SECTION ITS ELF. SINCE THE BENEFIT HAS BEEN GRANTED TO THE PROFITS AND GAINS D ERIVED 'FROM THE EXPORT OF' ELIGIBLE ARTICLES, WITHOUT FURTHER RESTR ICTING IT TO THE ARTICLES MANUFACTURED BY THE ASSESSEE IN ITS INDUST RIAL UNDERTAKING, WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN EXCLUDING THE EXPORT OF TRADING IN GOODS WORTH RS. 3.23 CRORES FROM THE QUALIFYING EXP ORTS. 12 AS FOR THE CLAIM OF LEARNED DR THAT THERE WAS A MENDMENT TO THE DEFINITION OF EXPORT TURNOVER WITH EFFECT FROM 01-04-2002, WE ARE UNABLE TO FIND ANY, THAT HAS A BEARING ON TH E ISSUE BEFORE US. SECOND PROVISO TO SECTION 108(1) AS IT EARLIER STOO D WAS NO DOUBT OMITTED BY FINANCE ACT, 2001, WITH EFFECT FROM 01-0 4-2P02. BUT THE EARLIER PROVISO WAS ONLY FOR FIXING A LIMIT OF 25% ON DOMESTIC SALES, FOR COMPUTING PROFITS AND GAINS DERIVED FROM EXPORT S. HERE ON THE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 19 OF 28 OTHER HAND, CLAIM OF THE ASSESSEE IS NOT ON DOMESTI C SALE, BUT ON EXPORT SALES OF GOODS PURCHASED AS SUCH BY IT. SEC TIONS 10A(I) AND 10B(I) ARE NO DIFFERENT, SINCE THESE ARE SIMILARLY WORDED. LEARNED CIT(A) IN OUR OPINION, FELL IN ERROR IN NOT FOLLOWI NG THE DECISION OF CO-ORDINATE BENCH. ASSESSEE HAD ALREADY PREFERRED A CLAIM BEFORE AO FOR DEDUCTION UNDER SECTION L0B, THOUGH ONLY ON MANUFACTURED GOODS. THE CLAIM MADE ON TRADING GOODS EXPORTED WAS ALSO UNDER SAME SECTION. IT CANNOT BE CONSIDERED AS A CLAIM OF DIFFERENT GENIE. IT IS ALSO A FACT THAT THE AO NEVER HAD AN OPPORTUN ITY TO VERIFY THIS CLAIM. IN ALL FAIRNESS WE ARE OF THE OPINION THAT T HE CLAIM CAN BE LOOKED AFRESH BY THE AO. WE THEREFORE, SET ASIDE TH E ORDER OF LEARNED CIT(A) ON THIS ISSUE AND REMIT IT TO THE AO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. GROUND S 2 & 3 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 19. FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE ITA NO.888(BANG)2010 DATED 05.0 9.2014, WE ALLOW GROUNDS 3(A) & 3(B) RAISED BY THE ASSESSEE. 20. WITH RESPECT TO GROUND NO.3(C) REGARDING THE AL TERNATE GROUND IN RESPECT OF EXPORT OF TRADED GOODS RAISED BEFORE THE CIT(A) AND STATED TO BE NOT CONSIDERED BY HIM, SINCE WE HAVE DECIDED THE IS SUE OF DEDUCTION U/S. 10B IN RESPECT OF EXPORT OF TRADED GOODS, THIS GROU ND BECOMES REDUNDANT. 21. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NOS.608/B/14 & 1332/B/14 BY REVENUE 22. THESE ARE APPEALS BY THE REVENUE FOR THE ASSESS MENT YEARS 2009- 10 & 2010-11. 23. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS IS AS TO WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN DIRECTING THE AO TO EXCLUDE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 20 OF 28 FREIGHT CHARGES, SHIPPING FREIGHT AND INSURANCE CHA RGES FROM THE EXPORT TURNOVER, WITHOUT REDUCING THE SAME FROM THE TOTAL TURNOVER ALSO, WHILE COMPUTING DEDUCTION U/S. 10B OF THE ACT. 24. ACCORDING TO THE AO, AS PER THE DEFINITION OF E XPORT TURNOVER GIVEN IN CLAUSE (IV) TO EXPLANATION 2, THESE EXPENSES INCURR ED ATTRIBUTABLE TO THE DELIVERY OF THE PRODUCT OR SOFTWARE OUTSIDE INDIA S HOULD BE REDUCED FROM THE EXPORT TURNOVER. HOWEVER, THE PROVISIONS OF SE CTION 10B DO NOT PROVIDE FOR EXCLUSION OF SUCH EXPENDITURE FROM TOTAL TURNOV ER. IN THE ABSENCE OF A DEFINITION FOR TOTAL TURNOVER IN SECTION 10B, THE N ORMAL DEFINITION OF TOTAL TURNOVER HAS TO BE ADOPTED AND AS SUCH THE EXPENSES WHICH ARE REDUCED FROM THE EXPORT TURNOVER IN ACCORDANCE WITH THE SPE CIFIC DEFINITION CANNOT BE REDUCED FROM THE TOTAL TURNOVER. 25. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) FOL LOWING THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. TATA ELXSI LTD., 349 ITR 98 (KARN) , HELD THAT WHATEVER IS EXCLUDED FROM THE EXPORT TURNOVER, HAS ALSO TO BE EXCLUDED FROM THE TOTAL TU RNOVER. 26. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 27. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE D ECISION OF HON'BLE HIGH COURT OF KARNATAKA IN TATA ELXSI (SUPRA) HAS NOT ATTAINED FINALITY AND AN APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE T HE HON'BLE SUPREME ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 21 OF 28 COURT. WE ARE OF THE VIEW THAT AS OF TODAY, LAW DE CLARED BY THE HON'BLE HIGH COURT OF KARNATAKA WHICH IS THE JURISDICTIONAL HIGH COURT IS BINDING ON US. WE THEREFORE HOLD THAT THE ORDER OF CIT(A) DOE S NOT CALL FOR ANY INTERFERENCE AND ACCORDINGLY THE SAME IS CONFIRMED. 28. IN THE RESULT, BOTH THE APPEALS BY THE REVENUE ARE DISMISSED. ITA NO.1474/BANG/2014 BY ASSESSEE (AY 2010-11) 29. THE FIRST GROUND OF APPEAL IS THAT THE AO WAS N OT CORRECT IN NOT CONSIDERING DEEMED EXPORT OF RS.6,41,85,706 AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10B. THIS ISSUE HAS ALREADY BEEN CONSIDERED BY US IN ITA NO.539/BANG/2014 FOR T HE AY 2009-10 HEREINABOVE AND THE ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE. FOR THE REASONS STATED THEREIN, WE ALLOW THE FIRST GROUND OF APPEAL. 30. THE 2 ND GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS:- 2) TRADED GOODS A) THE APPELLANT HAS TAKEN ADDITIONAL GROUND BEFOR E THE A.O. AT THE TIME OF SCRUTINY ASSESSMENT, ABOUT CONSIDERI NG THE TRADED GOODS OF RS.9,34,48,946/- AS PART OF EXPORT TURNOVE R FOR THE PURPOSE OF CALCULATION OF DEDUCTION UNDER SECTION 1 0B AS ALL THESE TRADED GOODS ARE EXPORTED OUT OF INDIA AND THE PROC EEDS ARE RECEIVED IN FOREIGN EXCHANGE WITH IN THE STIPULATED TIME. B) THE A.O. HAS ERRED IN NOT CONSIDERING AND APPRE CIATING THE PROVISIONS OF LAW AS DETAILED IN SECTION 10B AND NO T FOLLOWING THE DECISION OF HONBLE TRIBUNAL OF MUMBAI IN THE MATTE R OF T. TWO INTERNATIONAL (P) LTD. 26 SOT 582 (MUM) 2008. ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 22 OF 28 C) THE APPELLANT RELIES ON (ITS OWN) DECISION FOR THE AY 2007-08 AND AY 2008-09, WHERE THE JURISDICTIONAL TR IBUNAL HAS HELD IN FAVOR OF THE APPELLANT, ALLOWING THE DEDUCT ION FOR TRADED GOODS. 31. SIMILAR ISSUE HAS BEEN ADJUDICATED IN A.Y. 2009 -10 AND THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, FOLLOWI NG THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE ITA NO.888(BANG)2010 DATED 05.09.2014. FOR THE REASON S STATED THEREIN, GROUND NO.2 IS ALLOWED. 32. IN THE RESULT, THE APPEAL BY THE ASSESSEE FOR A .Y. 2010-11 IS ALLOWED. ITA NO.1475/BANG/2014 BY ASSESSEE (AY 2011-12) 33. THE FIRST GROUND OF APPEAL IS THAT THE AO WAS N OT CORRECT IN NOT CONSIDERING DEEMED EXPORT OF RS.4,07.30,611 AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10B. THIS ISSUE HAS ALREADY BEEN CONSIDERED BY US IN ITA NO.539/BANG/2014 FOR T HE AY 2009-10 HEREINABOVE AND THE ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE. FOR THE REASONS STATED THEREIN, WE ALLOW THE FIRST GROUND OF APPEAL. 34. THE 2 ND GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS:- 2) TRADED GOODS A) THE APPELLANT HAS TAKEN ADDITIONAL GROUND BEFOR E THE A.O. AT THE TIME OF SCRUTINY ASSESSMENT, ABOUT CONSIDERI NG THE TRADED GOODS OF RS.6,94,33,856/- AS PART OF EXPORT TURNOVE R FOR THE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 23 OF 28 PURPOSE OF CALCULATION OF DEDUCTION UNDER SECTION 1 0B AS ALL THESE TRADED GOODS ARE EXPORTED OUT OF INDIA AND THE PROC EEDS ARE RECEIVED IN FOREIGN EXCHANGE WITH IN THE STIPULATED TIME. B) THE A.O. HAS ERRED IN NOT CONSIDERING AND APPRE CIATING THE PROVISIONS OF LAW AS DETAILED IN SECTION 10B AND NO T FOLLOWING THE DECISION OF HONBLE TRIBUNAL OF MUMBAI IN THE MATTE R OF T. TWO INTERNATIONAL (P) LTD. 26 SOT 582 (MUM) 2008. C) THE APPELLANT RELIES ON (ITS OWN) DECISION FOR THE AY 2007-08 AND AY 2008-09, WHERE THE JURISDICTIONAL TR IBUNAL HAS HELD IN FAVOR OF THE APPELLANT, ALLOWING THE DEDUCT ION FOR TRADED GOODS. 35. SIMILAR ISSUE HAS BEEN ADJUDICATED IN A.Y. 2009 -10 AND THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, FOLLOWI NG THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE ITA NO.888(BANG)2010 DATED 05.09.2014. FOR THE REASON S STATED THEREIN, GROUND NO.2 IS ALLOWED. 36. THE THIRD GROUND RAISED BY THE ASSESSEE READS A S UNDER:- 3. THE AO WAS NOT CORRECT IN NOT CONSIDERING SALE OF OTHER EOUS OF RS.40,47,265/- AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S. 10B AS ALL THESE GOODS ARE EXPORTED OUT OF INDIA AND THE PROCEEDS ARE RECE IVED IN FOREIGN EXCHANGES WITHIN THE STIPULATED TIME. FURTHER, THE SE EXPORTS WERE ALLOWED AS DEDUCTION IN THE EARLIER YEARS SINCE AY 2006-07. 37. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO ERRED IN NOT APPRECIATING THE PROVISIONS OF SECTION 10B AND NOT FOLLOWING THE PREVIOUS ASSESSMENTS FROM AY 2006-07 TO 2010-11 WHICH HAS BE EN APPROVED BY THE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 24 OF 28 APPELLATE AUTHORITIES AND THE DEPARTMENT IS NOT IN APPEAL ON THIS ISSUE IN EARLIER YEARS. 38. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE H AS SUBMITTED LEDGER EXTRACT, SAMPLE BILL, DISCLAIMER CERTIFICATE AND SUPPORTING DOCUMENTS. THE RELEVANT EXTRACT OF FOREIGN TRADE POLICY IN RE SPECT OF SALE OF OTHER EOUS HAS BEEN FILED IN THE PAPERBOOK BEFORE US. WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE DET AILS FURNISHED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH, KEEPING IN MI ND THAT SIMILAR ISSUE FROM A.Y. 2006-07 HAS BEEN APPROVED BY THE REVENUE AUTHORITIES AND THERE HAS BEEN NO FURTHER APPEAL ON THIS ISSUE IN THE EAR LIER YEARS. GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 39. GROUND NO.4 READS AS FOLLOWS:- 4. THE A.O. WAS NOT CORRECT IN TREATING THE INTERE ST OF FIXED DEPOSITS UNDER INCOME FROM OTHER SOURCES AS THIS IS PART OF BUSINESS INCOME AND KEPT FOR BANK GUARANTEE PURPOSE AND NOT AN INCOME EARNED ON INVESTMENTS OF SURPLUS FUNDS. 40. THE ASSESSEE DECLARED INTEREST ON DEPOSITS OF R S.14,63,737 IN THE RETURN OF INCOME. DURING THE ASSESSMENT PROCEEDING S, ADDITIONAL INTEREST OF RS.4,60,221 AS PER 26AS STATEMENT WAS DECLARED B Y THE ASSESSEE. THE AO CONSIDERED THE INTEREST ON DEPOSITS TO THE EXTEN T OF RS.19,56,968 AS INCOME FROM OTHER SOURCES. ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 25 OF 28 41. ON APPEAL BEFORE THE CIT(APPEALS), THE ASSESSEE SUBMITTED THAT THESE DEPOSITS ARE KEPT FOR MARGIN MONEY AGAINST TH E BORROWED FUNDS FOR EXPORT REALIZATION PURPOSES AND THE RATES OF INTERE ST EARNED ON THESE MARGIN MONEY IS LESS THAN THE INTEREST PAID ON BORR OWED FUNDS. IT WAS FURTHER SUBMITTED THAT WITHOUT MARGIN MONEY DEPOSIT , THE ASSESSEE WILL NOT BE ABLE TO FULFILL THE EXPORT OBLIGATIONS AND BANK GUARANTEE COMMITMENTS. THE ASSESSEE POINTED OUT THAT THESE DEPOSITS ARE NO T INVESTMENTS OUT OF SURPLUS FUNDS, BUT FOR CONDUCTING DAY TO DAY AFFAIR S OF THE ASSESSEE COMPANY AND THE DEPLOYMENT OF THESE DEPOSITS ARE NO T IN THE HANDS OF THE ASSESSEE COMPANY, BUT ARE NECESSARY FOR FULFILLING THE SANCTION TERMS OF THE BANK. HENCE THESE DEPOSITS WERE PART OF BUSINESS INCOME AS CONSIDERED IN AYS 2005-06 TO 2010-11 AND NOT TO BE TREATED AS INCOME FROM OTHER SOURCES. RELIANCE WAS PLACED ON THE FOLLOWING DECI SIONS:- A) CIT V. CHINNA CONSTRUCTIONS (2006) 297 ITR 70 ( KAR) B) CIT V. KOSHIKA TELECOM LTD. (2006) 286 ITR 479 ( DEL) C) ACIT V. ALLIED CONSTRUCTION (2007) 106 TTJ 616 ( DEL TRIB.) 42. THE CIT(APPEALS) WAS OF THE VIEW THAT INTEREST RECEIVED FROM BANK WAS NOT CONNECTED WITH THE BUSINESS OF THE UNDERTAK ING OF THE ASSESSEE. RELYING ON THE DECISIONS OF K. RAVINDRAMATHAM NAIR V. DY. CIT (2003) 262 ITR 669 (KER) AND MKR FROZEN FOOD EXPERT V. ITO (2010) 126 ITD 1 (DEL ) , THE CIT(A) HELD THAT THERE WAS NO LINKAGE BETWEEN T HE BORROWINGS FROM THE BANK AND PLACING FIXED DEPOSITS WITH THE BANK, THE INTEREST EARNED FROM THE BANK DID NOT HAVE DIRECT OR PROXIMATE CONNECTION WI TH THE BUSINESS OF ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 26 OF 28 EXPORT OF EOU. THEREFORE, HE HELD THAT THE INTERES T SO RECEIVED WAS TAXABLE UNDER THE RESIDUARY HEAD AND UPHELD THE ORD ER OF THE AO. 43. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. TH E ASSESSEE HAS FILED COPIES OF LEDGER ACCOUNT FOR THE INTEREST EARNED DU RING THE PERIOD AND SANCTION OF CREDIT FACILITIES VIDE LETTER DATED 28. 02.2011 OF STATE BANK OF INDIA RELIED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF UNIVERSAL PRECISION SCREWS V. ACIT , 38 ITR (TRIB) 233 (ITAT[DEL]), WHEREIN IT WAS HELD AS UNDER:- 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSES SING OFFICER HELD INTEREST INCOME AS INELIGIBLE FOR DEDUCTION UN DER SECTION 10B(1) AS IT WAS NOT 'DERIVED FROM' THE ELIGIBLE BU SINESS. THE VIEW POINT OF THE ASSESSING OFFICER WOULD HAVE BEEN CORRECT IF THERE HAD BEEN NO FURTHER ELABORATION OF THE EXPRES SION 'SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER C ENT. EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS'. THE POSITION UNDER CONSIDERATION IS NOT AKIN TO SOME OF THE SECTIONS EMPLOYING THIS EXPRESSION WITHOUT ANY FURTHER AMPLI FICATION OF THE SAME. SUB-SECTION (4) OF SECTION 10B GIVES MEAN ING TO THE EXPRESSION 'PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS' TO MEAN THE AMOUNT WHICH BEARS TO THE 'PROFITS OF THE BUSINESS' OF THE UNDERTAKING THE SAME PROPORTION AS THE EXPORT T URNOVER IN RESPECT OF SUCH ARTICLES OR THINGS, ETC., BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. A BA RE PERUSAL OF SUB-SECTION (4) IN JUXTA POSITION TO SUB-SECTION (1 ) OF SECTION 10B TRANSPIRES THAT THE EXPRESSION 'DERIVED BY' USED IN SUB-SECTION (1) CANNOT BE CONSTRUED IN ITS LITERAL SENSE TO MEAN EN COMPASSING ONLY SUCH ITEMS OF INCOME WHICH HAVE DIRECT OR IMME DIATE NEXUS WITH THE ELIGIBLE UNDERTAKING. THE MEANING GIVEN TO THIS EXPRESSION IN SUB-SECTION (4) AS REFERRING TO 'THE PROFITS OF THE BUSINESS' MAKES THE EXPRESSION MORE LIBERAL TO COVE R ANY INCOME WHICH IS CONNECTED WITH 'THE BUSINESS' AND SHOULD N OT BE ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 27 OF 28 NECESSARILY 'DERIVED FROM THE INDUSTRIAL UNDERTAKIN G' ALONE. TURNING TO THE NATURE OF PRESENT INTEREST INCOME, B EING ARISING FROM FIXED DEPOSIT RECEIPTS OBTAINED FOR MARGIN MON EY FOR THE PURPOSES OF AVAILING CREDIT LIMITS FROM BANKS, IT B ECOMES VIVID THAT SUCH INTEREST BEARS THE REQUISITE CHARACTERIST ICS OF A 'BUSINESS INCOME.' THE MUMBAI BENCH OF THE TRIBUNAL IN LIVING STONES JEWELLERY P. LTD. V. DEPUTY CIT [2009] 31 SOT 323 (MUMBAI) HAS HELD THAT INTEREST DERIVED BY AN EXPORTER FROM FIXED DEPOSITS MADE WITH THE BANK FOR OBTAINING CREDIT LIMITS IS E LIGIBLE FOR THE BENEFIT UNDER SECTION 10A. SIMILAR VIEW HAS BEEN EX PRESSED IN ASST. CIT V. MOTOROLA INDIA ELECTRONICS P. LTD. [20 07] 295 ITR (AT) 376 (BANG) BY HOLDING THAT THE INTEREST INCOME HAVING CLOSE NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE IS ASSESSABLE AS INCOME FROM BUSINESS AND, HENCE, ELIGIBLE FOR THE B ENEFIT UNDER SECTION 10A AND SECTION 10B. IN VIEW OF THE ABOVE D ISCUSSION, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UND ER SECTION 10B OF THE ACT IN RESPECT OF THE INTEREST INCOME EARNED ON FIXED DEPOSIT RECEIPTS MADE FOR THE PURPOSES OF KEEPING M ARGIN MONEY OR FOR AVAILING OF ANY OTHER CREDIT FACILITY FROM B ANKS. 8. THE IMPUGNED ORDER ON THE ISSUE OF DEDUCTION UND ER SECTION 10B IS SET ASIDE AND THE MATTER IS SENT BACK TO THE ASSESSING OFFICER FOR COMPUTING DEDUCTION UNDER SECTION 10B A FRESH IN CONFORMITY WITH OUR ABOVE FINDINGS AND CONCLUSIONS. 44. WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSE SSING OFFICER TO LOOK INTO THE COPIES OF LEDGER ACCOUNT FOR THE INTEREST EARNED DURING THE PERIOD WHICH HAS BEEN FILED BY THE ASSESSEE AND THE OTHER EVIDENCES FILED WITH RESPECT TO THE CREDIT FACILITIES AVAILED FROM STATE BANK OF INDIA, AND THE A.O SHALL DECIDE THE ISSUE AFRESH KEEPING IN MIND THE D ECISION OF THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF UNIVERSAL PRECISIO N SCREWS (SUPRA). 45. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 539, 1474 & 1475 AND 608 & 1332/BANG/2014 PAGE 28 OF 28 46. THUS, ITA NOS.539 & 1474/B/14 BY THE ASSESSEE A RE ALLOWED, ITA NO.1475/B/14 BY THE ASSESSEE IS PARTLY ALLOWED AND ITA NOS.608 & 1332/B/14 BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF JANUARY, 2016. SD/- SD/- ( INTURI RAMA RAO ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 20 TH JANUARY, 2016. /D S/ GPR /DS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.